When we think of the budget we usually think of taxes, social security and USC. However, there were a number of themes to Budget 2016 which have an impact not just on taxation but across the economy as a whole.
The value of entrepreneurship has been recognised with the introduction of the CGT Entrepreneur Relief which reduces the rate of capital gains tax from 33% to 20% from 1st January 2016. This is a significant relief which sends the right message to entrepreneurs - it will reduce the tax cost of selling a business or retiring from business and thereby creating opportunities for the next generation.
By reducing the USC, the government has achieved its commitment to reduce the tax burden to less than 50% of income – but not yet for all taxpayers. The main winners are those with annual income between €18,669 and €70,044. The self-employed still pay 3% more on income in excess of €100,000 for no reason other than they are self-employed.
The government has begun to address the supply side of the homelessness crisis by providing €50million of funding and have pledged to provide 20,000 social housing units by 2020 – this will, of course, give a welcome boost to the construction sector. The use of NAMA in the provision of social housing has been welcomed but there is no mention of rent certainty or measures to stem the flow of people into homelessness.
CAPITAL GAINS TAX
CGT Entrepreneurial Relief
A revised capital gains tax relief for entrepreneurs is being introduced from 1 January 2016 which will apply a reduced capital gains tax rate of 20% to the disposal in whole or in part of a business up to an overall limit of €1 million in chargeable gains.
UNIVERSAL SOCIAL CHARGE
Every worker who currently pays USC will benefit from changes in Budget 2016.
Incomes of €13,000 or less are exempt. Otherwise,
€0 to €12,012 @ 1%
€12,013 to €18,666 @ 3%
€18,669 to €70,044 @ 5.5%
€70,045 to €100,000 @8%
PAYE income in excess of €100,000 @ 8%
Self-employed income in excess of €100,000 @ 11%
Medical card holders and individuals aged 70 years and over whose aggregate income does not exceed €60,000 will now pay a maximum rate of 3% USC.
Home Carer Tax Credit
The Home Carer Tax Credit has been increased from €810 to €1000 and the home carer income threshold is increased from €5,080 to €7,200.
Earned Income Credit
Introduction of an Earned Income Credit of €550 to be available to self-employed and business owner/managers who are ineligible for a PAYE credit on their salary income.
Knowledge Development Box
This measure will provide a lower rate of corporation tax for trading income arising from the development of innovative assets. A 6.25% rate of corporation tax will apply to the profits arising to certain patents and copyrighted software which are the result of qualifying R&D carried out in Ireland. Full details of this measure will be contained in the Finance Bill.
3 Year Relief for Start Up Companies
The relief is being extended to new business start-ups commencing to trade over the next three years.
The cap on eligible expenditure under the relief is being increased to €70 million to encourage larger productions.
12.5% Corporation Tax Rate
No change to the 12.5% corporation tax rate applicable to trading income.
A PRSI relief, to a maximum of €12 per week, has been introduced for employees . Relief commences at income of €352.01 per week, and tapers out at a rate of one-sixth of income in excess of this threshold. Relief fully tapers out as income reaches €424 per week.
Increase from €356.01 to €376.01 in the weekly threshold at which liability to employer’s PRSI increases from 8.5% to 10.75% on all earnings. This will potentially save an employer 45c per week, per employee, and this measure is intended to somewhat offset the 6% rise in the minimum wage (from 1st Jan 2016).
CAPITAL ACQUISITIONS TAX
The current Group A tax free threshold which applies primarily to gifts and inheritances from parents to their children is being increased from €225,000 to €280,000. This increase applies in respect of gifts or inheritances received on or after the 14th of October 2015.
Retention of the 9% VAT rate for the tourism and hospitality sector.
OTHER INCOME TAX MEASURES
Home Renovation Incentive (HRI)
The HRI is being extended until 31 December 2016.
High Earners Restriction
Profits or gains from the occupation of woodlands are being removed from the high earners’ restriction.
Incentives for Certain Aviation Services Facilities
The scheme of capital allowances for the construction of facilities used in the maintenance, repair, overhaul and dismantling of aircraft is being commenced.
CHILD RELATED CHANGES
On a lighter note, €50 million has been put aside for a range of events and initiatives so that the 2016 rising will be marked with respect.
A video message from Tadgh O'Sullivan, Director.
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